Novcember 18' Pharma Aff

Novcember 18’ Pharma

Aff OVs

Monopolies/Evergreening Evergreening cox

Monopolies → extend into dev world https://www.healthaffairs.org/do/10.1377/hblog20151029.051488/full/ - engelberg allows pour millions into market failures

Dalen-- / Breck--

https://www.theguardian.com/society/2006/nov/14/internationalaidanddevelopment.medicin eandhealth 1.42 billion cant buy in dev nation bc extended monopoly / evergreening

→ link to innovation https://www.encyclopedia.com/social-sciences-and-law/economics-business-and- labor/money-banking-and-investment/acquisitions-and-mergers - M&As https://openmarketsinstitute.org/explainer/high-drug-prices-and-monopoly/ https://www.nationalnursesunited.org/sites/default/files/nnu/files/pdf/research/MarchingTo wardMonopoly-PharmaMA10-17-16.pdf

Smart Innovation

Neg OVs

Developing Nations

A2 Aff

A2 Black Market

Link Defense Rhetoric 1. The black market will always outcompete legal sales. This is for X reasons: a. First, prices. Black market sellers have the incentive to keep their prices lower than legal market value. At that point, there is literally no reason why people who already rely on the black market for pharmaceuticals will suddenly turn away from the cheaper option. b. Second, anonymity. Collins ‘18 writes that people use the Dark Web to buy drugs because they don’t want other people knowing or tracking their actions. These people will continue to buy drugs through the black market regardless of price. c. Third, ease. According to Annex Bulletin ‘18, research suggests that the convenience of having drugs delivered straight to an address or a post office box is an attraction of dark net purchasing, while its hard to get a prescription from a doctor.. This perk doesn’t go away when price controls are implemented. At the end of the day, people are always incentivized to a) use the black market and b) keep it operable.

2. Price controls don’t change anything. Two examples: a. First, the UK. Grant ‘18 finds in January that UK police uncovered a black market operation responsible for the illegal buying of tens of millions of prescription-only drugs. He furthers that just three of the websites the gangs set up to sell the drugs had sales of £55m over a 12-15-month period. b. Second, Australia. Whyte ‘17 writes that prescription drug misuse was one of the biggest health issues in Australia, a country with a pharmaceutical price ceiling, because of the ease and prominence of the black market. The implication is that since the UK and Australia have already adopted price controls and people still rely on the black market for prescription drugs, you can’t buy the argument.

A2 Value Based Pricing 1. Anti-resolutional. The Business Dictionary defines a price control as a government dictated price ceiling on essential consumer goods. Second, of all 28 policies put forth in Trump’s American Patients First plan, not a single one includes a minimum or maximum price for drugs. This is a plan to reduce prices but it is not a price control plan. That’s why Deporre[2] 18 concludes that Trump’s plan is not a price control and furthermore, according to HealthAffairs[3] a recent proposal in UK suggested replacing price controls with value-based pricing. They are not the same thing. 2. Non-UQ. ModernHealthCare writes that insurance companies already use value based pricing because when insurance companies buy drugs they buy the best drugs at high prices while they purchase worse drugs for low prices. 3. Defense. Sachs of Health Affairs writes that because the US lacks sufficient data and measurements of drug effectiveness, it will be impossible to move to value based pricing with the current infrastructure in America. 4. Defense. Value based pricing would still cause venture capitalists to leave the industry because Moreno of NIH explains that value based pricing still undervalues the drug and lowers prices because the method for calculating the price of drugs is unable to determine the long term value of the drug and the savings it later provides by keeping people out of hospitals.

A2 Hospitals

1. Alt-Cause. They are spinning a false narrative by putting the blame on price controls, as the HRSA reports that the main reasons for hospital closure are insufficient patient populations, high rates of uninsured patients, dwindling cash flow, and doctor shortages. 2. Alt-Cause. The AAMC reports that by 2030 the doctor shortage is going to exponentially increase to 120,000 doctors, meaning that because my opponents never solve for the doctor shortage their lack of hospital care impact will happen anyways. 3. Defense. The issue is already being solved. The New York Times reports that a group of 300 hospitals and counting are forming a new company that will directly supply drugs to hospitals, ending any shortages.

A2 Reference Price Innov.

1. Defense. Prices and therefore profits, on net, for the pharmaceutical industry still go down, meaning that even if the companies want to innovate more to out compete they literally can’t because A) they don’t have as much money from investors and B) they don’t make as much money to reinvest into innovation. 2. Turn. Tosini of the European School of Management and Technology writes that reference pricing also hurts innovation in a few ways: A. Reference pricing creates an incentive to avoid markets where there is high demand but also high competition, which means that they only focus on small markets with not many people being affected, neglecting large populations of people who need drugs. B. Pharmaceutical companies are more likely to cancel projects at later stages of the development process if they perceive that there is a high probability that another firm will launch a product to treat the same disease before them, resulting in sunk investment being wasted due to reference pricing. C. Reference pricing still lowers innovation because firms cannot predict that they will be the first to develop the new drug, so they expect a lower return on their investment.

A2 Smart Innovation

A2 Parallel Trade

A2 Imports Out-Compete (W) - Look up restrictions on imports 1. Defense. Friedman of the ABA explains that its illegal to import drugs into the market, meaning if this does happen it is probably a small amount considering the DEA arrests people who do this. 2. Defense. Other countries can’t out compete the US pharmaceutical industry for three reasons. a. They can’t import drugs in the United States that US companies have patents on, which are the drugs the US raises prices for, meaning that the US will always hike up prices on patented drugs. b. US has the largest and most innovative pharmaceutical industry because all other nations have regulations on their industry that deters investors. Because the US is the most innovative, American companies will just outcompete imported drugs through innovation. c. People want to buy the most innovative and best brand drugs to save their life which are the American companies so people will never buy other countries drugs because they want to be sure they get the best medicine. 3. Defense. If this were true prices would be dropping right now because the companies would be trying to compete with the imports.

A2 Innovation (I) 1. Investors will still pull out and turn to other industries because they realize it is less profitable.

A2 Affordability

A2 General Uniqueness 1. Weighing. Shepherd of Emory University gives us two reasons innovation is more cost-effective for consumers rather than price controls. a. Health improvements from new drugs can eliminate 19 billion dollars in lost wages by preventing lost work due to illnesses. b. Because new effective drugs reduce medical spending on doctor visits, hospitalizations, and other medical procedures, data show that for every incremental dollar spent on new drugs, total medical spending decreases by more than seven dollars. This is extremely important because Howard of New York Times explains that hospitals account for 30 percent of health-care spending while drugs only account for 10 percent. 2. UQ. Daniel of the AIM explains that biosimilars, the generic version of biologic drugs, are less regulated than biologics, so they get to the market much more quickly. As a result, they are much cheaper to produce so are able to be widely produced, increasing competition and driving down costs, which is why a RAND Corporation analysis predicts that biosimilars could lead to a $44 billion reduction in direct spending on biologic drugs by 2024. 3. UQ. Brookings explains that the US pharmaceutical market is currently one of the most effective because of competition between manufacturers. As soon as a drug comes out, even if it has a patent, substitute therapies for that drug enter the market with lower prices resulting in prices decreasing. As time goes on, generic drugs are allowed to enter the market which pushes prices down further. 4. Uniqueness. Aitken of the Institute for Human Data Science writes that because of a rise in generics, drug prices are falling by 17% right now. This means that the problem they’re talking about is solving itself as competition enters the market. Prefer this evidence over affirmative evidence saying prices are rising, as Aitken continues that evidence that says prices are rising are only looking at the list price, but the increased usage of discounts and rebates have lowered the final out-of-pocket costs for the consumer. 5. Turn. Moore of the Heritage Foundation writes that right now, follow-on drugs are developed even when drugs are still on patent, and these new drugs introduce competition into the market, thus lowering the cost of the entire therapeutic class for consumers. Indeed, he finds that these follow-on drugs are developed in less than 2 years on average. Unfortunately, he writes that price controls would slow the development of new drugs, lowering competition and raising prices for consumers. 6. External DA. Mello ’18 of the Stanford Law School writes that because of the high prices in America, companies are willing to sell drugs at a lower cost in developing nations. Thus, Ford ’01 of the Journal of Tropical Medicine and International Health quantifies that prices of drugs are 1 to 5% of the price in America, giving access to medicine for millions in the developing world. Unfortunately, Mello ’18 concludes that price controls, by significantly cutting profits for companies in America, would force companies to hike prices elsewhere, preventing people from getting necessary treatment. This has two implications: A. Any access argument they win is simply a tradeoff with access in the developing world, which means they have no offense here. B. Developing world outweighs on scope because they’re significantly more exposed to lethal diseases on a much wider scale than in America.

A2 Evergreening UQ. 1. Defense. Darrow of Harvard University explains that while evergreening creates a new patent on a new drug, the old drug is still in the public domain and generics are able to be made off of it. 2. Defense. Song of NIH gives us two reasons evergreening or extending patents is already going away. a. Increasing investigations and scrutiny in the US over anti-competitive and monopolization practices are deterring pharmaceutical firms from evergreening. b. Patent lawsuits from generic companies against big pharmaceutical companies are increasingly successful, allowing generic companies to sue pharmaceutical companies when they try to extend their patent. 3. Defense. We would argue that their analysis is very limited in scope because their evergreening evidence only looks at subsections of the pharmaceutical market. That’s why you prefer the Indxx evidence in our case that looks at the entire market in a holistic economic analysis that finds that by 2020 92% of prescriptions will be generics, indicating that despite any amount of evergreening that is happening generics are still rapidly entering the market. A2 Barrier to Entry UQ.

A2 Generics Monopolies Uniqueness 1. Turn. Sullivan ’18 of Policy and Medicine writes that price controls induce drug makers to exit various markets and to stop selling. That only encourages further monopolization. For example, Tate ’02 of the HealthCare Institute of New Jersey writes price controls reduced the number of developers of childhood vaccines from 20 to 4 companies in just a few years. 2. Defense. The IBIS, an industry research firm, writes that the number of businesses in the generic industry has risen by 2.9% in the past 5 years, indicating that the market is not consolidating itself. That’s why the Torreya Partners ’16 quantifies that the HHI index, a widely used index to measure industry consolidation, is only 0.021, far below the threshold of 0.25 that demarcates a highly concentrated industry. Holistically, Graham ’12 of the Mackinac Public Policy writes that in 2001, the top five generic manufacturers accounted for 90% of the market, but the concentration has only declined since then, with more manufacturers entering the market than those leaving it.

A2 Access (Warrant) 1. Turn. Science Daily explains that the driving force behind the high cost of drugs is the cost to make them in the first place, as around 80% of drugs never recover the cost of development. As such, the best way to drive down prices is to make manufacturing drugs more effective, which can only happen with more innovation. 2. Turn. Spiegel of the Hill finds that price controls cause a lengthy price-negotiation process, whereas in America, drugs are approved months quicker than in Canada and Europe, where delays in healthcare cause an annual 600,000 deaths.

A2 Monopolies UQ 1. Turn. Danzon of the University of Pennsylvania explains that when price controls decrease pharmaceutical revenues monopolization increases for 2 reasons. a. Large pharmaceutical firms consolidate or acquire and merge with other firms so they can pool their resources to sustain the hit to their revenue. b. Small firms sell to potential buyers or exit the market because of the financial trouble caused

A2 Insurance/Healthcare Costs Rising 1. Uniqueness. Aitken of the Institute for Human Data Science writes that because of a rise in generics, drug prices are falling by 17% right now. This means that the problem they’re talking about is solving itself as competition enters the market. Prefer this evidence over affirmative evidence saying prices are rising, as Aitken continues that evidence that says prices are rising are only looking at the list price, but the increased usage of discounts and rebates have lowered the final out-of-pocket costs for the consumer. 2. Uniqueness. Kodjak of NPR finds that insurance premiums are currently plateauing, and aside from rare exceptions, costs are staying the same and in some cases decreasing. 3. Mitigate. The Investor’s Business Daily writes that prescription drugs account for less than 10% of total health spending, and that share is identical to in 1960. Thus, Lakwadalla ’15 of the New York Times writes that imposing price controls would only shave off 2% of our total health care bill. 4. Uniqueness. The Investor’s Business Daily writes that recent FDA actions to accelerate the approval rates of generics is dramatically lowering drug prices for healthcare, which is why in 2016, the most recent year we have on record, the share of public spending on drugs went down. 5. Delink. Book of Forbes writes that government negotiations have historically failed to lower drug prices because companies simply take away discounts that they offer, thus not benefitting healthcare. 6. Turn. The Congressional Budget Office finds that for every 1% insurers spend on prescription drugs total spend goes down .2 percent because medicine prevents insurers from having to pay expensive and costly insurance bills.

A2 Small Firms Uq. 1. DA. Affirming hurts small firms. Morton of Brookings finds that in the status quo, small pharmaceutical firms often have market exclusivity on niche corners of the industry, and due to the small amounts of prescriptions needed for these rare diseases, they rely on high prices to survive. With price controls, they no longer generate the revenue needed to continue production and rare diseases instead go untreated.

A2 Neg

A2 Drug Delays

1. De-Link this argument because the internal warrant is misconstrued. Kashef of Yale [i] explains that the reason why the EU is slower than the FDA is not because of price controls, but the method of scientific approval. Approval for drugs is very tedious and difficult, but the U.S system of the FDA is far more efficient than the Europe’s EMA.

A2 High Drug Cost Lowers Premiums

1. Defense. Allen of NPR finds that under the ACA, insurance companies must spend 80% of the premiums they charge on healthcare. Thus, if drug prices decrease and healthcare costs go down, premiums legally must go down as well.

A2 Developing Nations

1. Defense. Gehrke of DW explains that less pricey medicine would not improve medical care in developing nations because there are external factors such as a lack of health infrastructure, doctors, and supply. 2. Defense. Gronde of Utrecht University writes that price controls would reduce prices by 20% and increase access by 23%, but only create a 1% decrease in revenue, meaning that the pharmaceutical companies still have the profits to sell in dev nations. 3. Non-UQ. Pinheiro ’08 of the NIH writes that drug companies get tax deductions and use drug donations as a cheaper method to getting rid of stagnant stocks. This has two implications: a. These drugs that the developing countries are receiving are unusable, since they’re just dumping old drugs. b. The companies always have an incentive to drug dump because it’s cheaper than actually destroying the drugs. 4. Non-UQ. Pharmaceutical companies will always sell in developing nations because it is profitable. Lorenzetti of Fortune writes that pharmaceutical companies are targeting developing nations because developing nations are projected to have the fastest growth in drug spending for the next three years and account for 50% of pharmaceutical growth in 2018. The recent population growth, longer lifespan, and internal healthcare investments have made developing nations attractive to pharmaceutical nations. Moreover, pharmaceutical companies are selling drugs at a large margin of profit. 5. Defense/Turn. My opponents are spinning a false narrative about the US pharma industry. Boseley of the Guardian writes that US pharmaceutical firms spend millions lobbying the US Commented [1]: cox,boeseley, oxfam government to pressure developing nations into giving US firms exclusive rights over drugs, enabling them to hike prices of drugs for even the poorest nations. For example, pharmaceutical firms used their economic clout to compel the US government into taking away Colombia’s free- trade deals if the Colombian government did not grant US firms monopolistic control. Boseley finds that this practice has led to 1.4 billion people being unable to purchase drugs. Fortunately, Commented [2]: ask lizzie to edit/shorten price controls, by cutting into the profits of monopolistic firms, takes away the excess profits firms use to lobby. In fact, by taking away the ability for large pharmaceutical firms to lobby, Brekke of NHH finds that price controls reduce monopolies by 37% and increase generics market share. Commented [3]: ask lizzie to edit/shorten 6. De-Link/Non-UQ. The Access to Medicine Foundation reports that out of the top 20 pharmaceutical companies, in terms of increasing access in developing nations, 13 are based in Europe and Japan, places with heavy price controls. In fact, Watson of NIH explains that the European Union has adopted legislation allowing companies to export generic versions of drugs that have patents. This means two things. a. Price controls do not stop companies from giving developing nations access to medicine. b. Even if price controls stop US companies from providing access to developing nations European and Japanese companies will always fill the void left by the US.

7. Defense. Cox of Vice writes that America’s pharmaceutical companies use evergreening to stop companies in the developing world from producing the same drugs. 8. Mitigation. The Access to Medicine Foundation writes companies use equitable pricing strategies for only a few diseases. Moreover, equitable pricing strategies are only used for drugs that have already had their patent expired.

A2 Pricing 1. Defense/Non-UQ. Ford of the Journal of Tropical Medicine and International Health writes that the pricing policy of pharmaceutical companies is not set according to the purchasing power of different countries, but based on a strategy to maximize profit, rather the reason developing nations access drugs is because of generic companies. In fact, The Conversation reports that since the WTO passed a waiver allowing developing nations to make and import generic versions of patented drugs developing nations have started their own pharmaceutical industries that have increased access for the developing world.

A2 Doctors 1. Defense. Mendoza of Devex finds that one of the main firms carrying out doctor training programs is GlaxoSmithKline, a British pharma firm. This has two impacts: a. Price controls do not impede the ability of pharmaceutical companies to train doctors in developing nations. b. British firms or firms from other European countries can fill the void left by the lack of American pharma. 2. Turn. Pharmaceutical firms always have an incentive to train doctors in developing nations because those doctors can then prescribe that company’s medicine to their patients, making it profitable for these companies to continually do so.

A2 Donations 1. Defense. The Atlantic writes that donations are used by pharmaceutical companies to justify the larger problem that developing nations and humanitarian organizations can’t afford. However, donations will never solve the problem because they may help some people but they are too small too solve diseases of this magnitude, they only exacerbate the problem by letting pharma companies get away.

A2 PBMs

1. Impact Turn. Shepherd of Emory University explains that PBMs have adopted tools and changes to reduce pharmaceutical prices and steer patients towards less expensive alternatives. For example, PBMs have successfully reduced drug spending by requiring substitution of generic drugs for brand name drugs when clinically appropriate.

A2 Pharma Pull ACA Money

A2 Drug Shortages

1. Monopolies always create shortages. Get ev for this.

A2 Generic Shortages 1. Non Uq. Gagnon of Carleton University explains that monopolization causes shortages because it results in supply disruptions based on business decisions to narrow the focus of the product line, discontinue products or to shift manufacturing to another facility. 2. Non UQ. Ungar ‘12 of Forbes finds that under the pretense of “manufacturing delays”, pharmaceutical companies rapidly inflate drug prices by withholding supply from those desperate for a cure. 3. Non-UQ. PharmaTech writes that the current tariffs and trade war with China is already going to discourage generic manufacturing because 80% of pharmaceutical ingredients the US uses come from China. Thus, the current tariffs are increasing the price of pharmaceutical ingredients which will cut into the already slim profit margins of the generic firms and create shortages. 4. Defense. PharmaTech explains that as US generic manufacturers are currently pulling out of the market due to the decreasing profitability of the generic industry foreign generic firms with cheap labor are exporting cheap generics to the US to satisfy the new demand, meaning that generic shortages will always be filled by foreign firms.

UQ. Generics Dec Prices. 1. Kacik of ModernHealthCare → even with generic decreases overall spending has increased because the medicines that don’t have generics have been increasing prices, which outpaces the rate at which generics decrease.

General Warrant 1. Turn. Science Daily explains that the status quo draws investment away from the generic industry because current high prices incentivize the industry to maximize profit margins by developing high-cost and new, but rarely innovative drugs. With price controls, resources and investment would be shifted to generics because the pharmaceutical industry would see maximize sale volume through generics as more profitable.

A2 Innovation (General) 1. Defense. The Light of the British Medical Journal writes that US pharmaceutical companies spend only 1% of their revenues on innovation, while they spend 25% of revenues on marketing, meaning that even if they suffered a revenue loss under price controls they could just shift money away from marketing. 2. Delink. Mazz of New Scientist writes that 75% of new, innovative drugs come from the public sector, despite a meager budget of $30 billion each year. 3. Defense. Light of Princeton University that in Canada and the UK pharmaceutical companies still recuperate their costs on innovation with 40% lower drug prices, indicating that US companies do not need high drug prices to offset the cost of innovation and attract investment. 4. Defense. Monopolistic control halts innovation for two reasons. a. Stiebale of Harvard Business Review explains that after large firms merge or acquire another small firm innovation falls by 20% because large firms buy out other firms who they think are going to beat them with innovation and end their projects. Once these large firms have control, they stop innovation because they have control of the entire market and have no reason to expend money on trying to make a better drug. b. Feldman of UC Hastings explains that evergreening stifles innovation because large pharmaceutical firms spend money on extending patents so they can hold a monopoly on medicine to beat competition, instead of trying to beat out competing pharmaceutical firms through innovation. 5. Turn (Optional). Fortunately, affirming can end this monopolistic control. Engelberg of NYU explains that the pharmaceutical industry pours millions of excess profits into maintaining monopolistic control. Fortunately, price controls, by cutting into the profits of monopolistic firms, takes away the excess profits firms use to acquire smaller firms. In fact, by taking away the ability for large pharmaceutical firms to acquire competing companies, Brekke of NHH finds that price controls reduce monopolies by 37% and increase generics market share. This is why Light of Stanford finds that Europe, who has price controls and regulation, has surpassed the US in innovation. a. Scope-Magnification(Optional). This is crucial, as Boseley of the Guardian writes that Commented [4]: cox,boeseley, oxfam pharmaceutical firms spend millions lobbying the US government to pressure developing nations into giving US firms exclusive rights over drugs, enabling them to hike prices of drugs for even the poorest nations. For example, pharmaceutical firms used their economic clout to compel the US government into taking away Colombia’s free-trade deals if the Colombian government did not grant US firms monopolistic control. Boseley finds that this practice has led to 1.4 billion people being unable to purchase drugs. Commented [5]: ask lizzie to edit/shorten 6. Delink. Smith of Undark writes that the cost to bring a new drug to market increases at 9% each year, doubling every 8 years. This is because Stott ’17 of Endpoints News writes that since we’ve already cured all the easy diseases to cure, the remaining ones cost significantly more to cure to the point of unprofitability. Thus, Fleming ’18 of Forbes concludes that every single analyst agrees that R&D will be completely unprofitable by 2020 for private firms. 7. Turn. Frank of the Brookings Institute writes that the vast majority of new drugs being developed are going into markets that already have five or more products. Indeed, Light of Stanford quantifies that 85% of new drugs being developed are these copycat drugs that don’t have any tangible benefit to society. However, affirming would incentivize a diversification of investment into new drugs. Herper ’14 of Forbes writes that high prices incentivize companies to always prefer developing copycat drugs rather than new, innovative drugs because of higher risk for the novel drugs. Logically, price controls would solve this because it creates an incentive for companies to enter new markets where they are the only seller rather than compete in copycat drug markets where prices are capped. (Optional) This is crucial as Light of Stanford finds that these copycat drugs have “spawned an epidemic of adverse reactions that rank behind stroke as a leading cause of death and cause about 4.4 million hospitalizations worldwide”.

A2 Small Biotech 1. Defense. Nicoll of The Street explains small biotech firms are not affected by price controls because small firms don’t actually sell the drugs they create to consumers, rather, small firms create new drugs then a big pharmaceutical company buys the drug and sells it to consumers. 2. Defense. Pisano of Harvard Business Review explains that small biotechnology firms are not as innovative as they used to be because they have turned away from high- risk innovation and towards improving old drugs in an attempt to assuage investors fears over risk. Lutz ’17 of Medical Express confirms that venture capitalists have already fled the risky biotech firms because it’s simply more profitable to invest in other industries that are much lower risk. Indeed, Mukherjee ’15 of Biopharma Drive corroborates that there were 40% fewer venture investors for biotech in 2013 than in 2007. 3. Delink. Mukherjee ’15 of Biopharma Drive writes that the majority of VC funding goes to small diseases that hardly affect anybody, ignoring the large population diseases that kill the majority of the people.

A2 Dec. Investment - Offset w/ new demand

A2 Dec. Finance - Offset w/ new demand

Indicts

Commanor

Problems with the Comanor evidence:

1. it only looks at a sample size of 30 drugs, which is literally nothing 2. The sample is from 2000 to 2007, which means any recent evidence could post-date it 3. It only looks at drugs for diseases that primarily affect BOTH developing and developed nations, which means the drugs their evidence is looking at isn’t the tropical diseases that kill millions in the region 4. the study defines marginal costs as the cost of the generic in the developing world, assuming that competition has driven down generic prices to marginal cost. This makes little sense when _ says generic prices are increasing in the developed world.

Galt

1. Galt is not listed under the faculty list of professors. Carnegie Mellon doesn't have an economics department. This card is fake. 2. Assumes pc= inc rev. Sood → not. 3. Profile pic.https://www.google.com/search?q=karl+denniger&rlz=1C5CHFA_enUS701US701& oq=karl+denniger&aqs=chrome..69i57j0l5.2566j0j7&sourceid=chrome&ie=UTF-8 https://www.academia.edu/37569126/R_and_D_AND_PHARMACEUTICAL_PRICE_ CONTROLS_A_LONG_TERM_VIEW 4. Made Oct 24 . 23 days after topic released and right before Blue Key oct 27.

Ev.

Dev nations europe https://accesstomedicinefoundation.org/media/uploads/downloads/5bf6b4b5610e4_Access- to-Medicine-Index-2018.pdf gsk

Mazzucato, LA Times, 2015, http://www.latimes.com/opinion/op-ed/la-oe-1027- mazzucato-big-pharma-prices-20151027-story.html

Big Pharma, while of course contributing to innovation, has increasingly decommitted itself from the high-risk side of research and development, often letting small biotech companies and the NIH do most of the hard work. Indeed, roughly 75% of so-called new molecular entities with priority rating (the most innovative drugs) trace their existence to NIH funding, while companies spend more on "me too" drugs (slight variations of existing ones.)

ITIF. "University Research Funding: The United States is Behind and Falling." Information Technology & Innovation Foundation. May 2011. Web. 26 Apr. 2018.

Research performed outside the private sector is essential to the U.S.

innovation system. Even with robust corporate R&D investment, the private sector alone does not provide the level of innovative activity that society needs, because firms do

not capture all of the benefits of innovation. A plethora of studies have found that the rate of return to society from corporate R&D and innovation activities is at least twice the estimated returns that a company itself receives.10 For example, Tewksbury, Crandall and Crane examine the rate of return from twenty prominent innovations and find a median private rate of return of 27 percent but a median social rate of return of a whopping 99 percent, almost four times higher.11 Nordhaus estimates that inventors capture just 4 percent of the total social gains from their innovations; the rest spill over to other companies and to society as a whole.12

Recently, universities have taken on an even greater role in the American innovation system. Over the last three decades, many large corporations have shut down or repurposed central research laboratories

that used to conduct R&D. For example, since its founding in 1925, Bell Labs (until 1995, a subsidiary of AT&T) made seminal scientific discoveries, created powerful new technologies, and built the world's most advanced and reliable telecommunications networks. Because so much of these results spilled over to other firms (not just AT&T) and industries, the incentive to perform this kind of foundational, generic research was based on the fact that AT&T had significant market power and was a regulated monopoly. But with the introduction of competition to the telecommunications industry in the 1980s and 1990s, Bell Labs was restructured to focus more on incremental technology improvements with shorter-term payoffs. This is reflective of an overall shift in corporate R&D, with companies in the United States expanding their investments in laterstage applied research and development much more quickly than their

investments in basic, early-stage research. In other words, the private sector under- invests in innovation and thus, without public investment, the rates of economic growth, job creation and living standard improvement are all

lower than their potential. The university system, therefore, plays a key role in filling in this gap in order to provide innovation at the social optimum. 13 From 1991 to 2008, basic research as a share of total corporate R&D funding conducted in the United States fell by 3.2 percentage points, while applied research fell by 3.7 percentage points. In contrast, development’s share increased by 6.9 percentage points.14

This shift to shorter-term, less fundamental R&D risks a shrinking of the knowledge pool from which firms draw the ideas and information necessary

to conduct later-stage R&D and to bring innovations to the market. As U.S. companies have shifted their R&D activities upstream, universities have taken on a larger role in the innovation system. Today, universities perform 56 percent of all basic

research, compared to 38 percent in 1960.15 Moreover, universities are increasingly passing on

these results to the private sector: Between 1991 and 2009, the number of patent applications filed by universities increased

from 14 per institution to 68 per institution; licensing income increased from $1.9 million per institution to $13 million per institution; and new start- ups formed as a result of university research increased from 212 in 1994 to 685 in 2009.16

Overall, university research has large impacts on U.S. economic growth. In terms of

its impact on product and process development in U.S. firms, Mansfield finds the social rate of return from

investment in academic research to be at least 40 percent.17 And a study by the Science Coalition found that “companies spun out of research universities have a far greater

success rate than other companies.”18 Indeed, university research gave the United States breakthrough companies such as Google, Medtronic and iRobot.

Brookings https://www.brookings.edu/research/enabling-competition-in-pharmaceutical-markets/ The U.S. generic market is one of the most dynamic and cost- effective in the world due to competition between manufacturers. The inventor of a socially valuable patented drug may charge high prices in the U.S. market, and the ensuing profit incentivizes innovation that benefits consumers. Subsequent competition between substitute therapies, even those on patent, can push down these prices over time. Generic entry after patent expiration pushes down prices even further. This form of price discipline, generated by market forces, rewards the attributes and efficacies that consumers want. For example, if a particular drug is differentiated from its competitors in a useful way, it will be able to command a higher price.

Shepherd Emory Univesity

Consumers will suffer from reductions in innovation. Research shows that pharmaceutical innovation has produced significant health benefits to consumers. Empirical estimates of the benefits of pharmaceutical innovation indicate that each new drug brought to market saves

11,200 life- years each year. 154 Another study finds that the health improvements from each new drug can eliminate nineteen billion dollars in lost wages by preventing lost work due to illness.155 Additionally, because new effective drugs reduce medical spending on doctor visits, hospitalizations, and other medical procedures, data show that for every incremental dollar spent on new drugs, total medical spending decreases by more than seven dollars.156

Howard New York Times

The idea that we “overspend” on drugs is also misleading. In 2014, drug spending accounted for just 10 percent of U.S. health care spending, and according to government actuaries, spending will increase by only 0.4 percentage points over the next decade. Hospitals, for comparison, account for more than 30 percent of total health care spending. Countries that use price controls advocated by industry critics actually spend a larger share on drugs and use fewer cost-saving generics than the United States does.

Daniel AIM Biosimilars, also referred to as “follow-on biologics,” are off-brand but highly similar to reference or “originator” biologic products and are expected to help curb the prevalence of high- priced biologics. Over 700 follow-on biologics are in development worldwide, and it has been suggested that biosimilars will account for about $25 billion in sales from off-patent biologics by 2020 (68). Although sometimes referred to as the “generic” version of biologics, they are not considered by federal regulators to be generic, because the nature of the biologic drug and sensitivities to manufacturing and handling do not result in exact duplication. Some biosimilars may be deemed interchangeable with their originator product, but obtaining status as a biosimilar does not automatically indicate interchangeability— unlike generics, which are chemically identical to their brand-name counterparts Biosimilars have been available in Europe since 2006, and 22 biosimilars are available in the European Union. A 2013 report found that the biosimilar market in Europe has helped to improve competition and increase access to biologic medicines, although overall uptake and financial impact remains modest (69). The United States and international markets differ in their ability to regulate the cost of drugs and available research and effectiveness data; however, this example, as well as the reduction in prices and costs associated with the introduction of generic drugs in the United States, suggests future cost-savings associated with biosimilars. In addition, despite the modest gains seen in the European Union, analysts think that the United States may be faster to adopt the use of biosimilars because the European Union does not allow interchangeability (68). A RAND Corporation analysis predicts that biosimilars could lead to a $44.2 billion reduction in direct spending on biologic drugs between 2014 and 2024 (71).

Darrow of Harvard University

But suggesting that such patents “extend” the effective patent term of the original product involves a bit of analytical slight of hand: In general, this type of evergreening strategy only works if consumers and doctors can be persuaded to demand the new, patented, slightly modified—and often much more expensive—version of the old drug. The old drug, which is no longer subject to patent protection, is in the public domain. Although pharmaceutical companies have obtained a new patent, the patent on the original drug product has not been extended at All.

Moore, Stephen. “Foreign Price Controls Jeopardize Global Health and Raise Drug Costs for Americans.” Chief Economist at The Heritage Foundation. July 2018. https://committeetounleashprosperity.com/wp- content/uploads/2018/07/CTUP_WhitePaper_Moore_Jul2018.pdf //RJ

Developing new drugs is a costly business, requiring an average $2.6 billion of R&D spending for each new treatment that receives approval. At the same time, the drugs developed by U.S. pharmaceutical companies are truly beneficial to all global citizens, as all people are susceptible to the ailments medicines are designed to treat. To equalize the costs of drug development, the Trump administration has proposed a series of reforms to lower drug prices for Americans. Here’s where innovation deserves another look, because pharmaceutical R&D isn’t just the key to unlocking new cures: it’s also one of the main ways of reducing prices for existing drugs, by encouraging competition in the marketplace. Conversely, while some of the White House’s proposed reforms make sense, there is a danger that lowering prices and thus profits with artificial price controls here at home will chase investment outside the U.S. and slow the development of new drugs. In fact, this could paradoxically raise health care costs for several reasons. First, research has shown that the entry of a new drug into the marketplace, often with additional benefits in the form of increased efficacy or tolerability, forces down the prices of other drugs in the same therapeutic class—even before their patents have expired. This is because, as physicians begin to sign prescriptions for the new entrant, insurers, pharmacy benefit managers and other intermediaries take advantage of this new competitor product to negotiate better deals for existing drugs. Similarly the introduction of several “me-too” or “followon” drugs with comparable efficacy diminishes differentiation for each, reducing the price premium drug makers can demand for them.13,14,15 One of the most spectacular examples of the impact of new entrants on drug prices in recent years came in the fast-growing field of Hepatitis C treatments. Following Gilead’s introduction of the breakthrough Hepatitis C cure Sovaldi in 2013, competitors rushed a number of drugs exploiting the same underlying biological mechanism to market, resulting in dramatic price drops across the entire therapeutic class. This competition has resulted in rebates and discounts ranging from about 22 percent in 2014 to about 40-65 percent today.16,17 This analysis doesn’t include the overall cost savings projected from curing 2.9 million Americans with chronic Hepatitis C, including hospital stays and transplant costs, estimated at $100.3 billion in the U.S.18 Hepatitis C drugs are just one of the more dramatic cases of new entrants bringing down prices by offering cheaper alternatives in the same therapeutic class. One study found that seven new “follow-on” drugs developed to treat conditions including nonHodgkin’s lymphoma, ovarian cancer, psoriasis, and Huntington’s disease offered discounts over the incumbent drug ranging from 21 percent to 61 percent.19 It should be emphasized that these price reductions were achieved without resorting to artificial price controls and while all the competing drugs still enjoy patent protections, preserving marketplace incentives for continued innovation. These beneficial effects can be achieved relatively rapidly: the average time required to develop a “follow-on” drug has fallen from nine years in the 1970s to 1.7 years today. In fact, it’s not uncommon for competitors to develop follow-on drugs and file to begin clinical testing before the original drug has even received final FDA approval.20

Shepherd, Joanna. “Disrupting the Balance: The Conflict Between Hatch-Waxman and Inter Parties Review.” New York University. Fall 2016. https://www.ftc.gov/system/files/documents/public_comments/2018/08/ftc-2018-0055-d-0006- 148045.pdf //RJ

A reduction in innovation will jeopardize the significant health advances that innovation achieves. Empirical estimates of the benefits of pharmaceutical innovation indicate that each new drug brought to market saves 11,200 life-years each year. 30 Another study finds that the health improvements from each new drug can eliminate $19 billion in lost wages by preventing lost work due to illness.31 Moreover, because new, effective drugs reduce medical spending on doctor visits, hospitalizations, and other medical procedures, data shows that for every additional dollar spent on new drugs, total medical spending decreases by more than seven dollars.32 Brand companies, and the profit incentives that motivate them, are largely responsible for pharmaceutical innovation. Thus, actions that reduce brand profitability could have long-term negative effects on consumer health and health care spending. Mello, Michelle. “What Makes Ensuring Access to Affordable Prescription Drugs the Hardest Problem in Health Policy?” 2018. (She is a Professor of Law, Stanford Law School, and Professor of Health Research and Policy, Department of Health Research and Policy, Stanford University School of Medicine; Ph.D., University of North Carolina at Chapel Hill; J.D., Yale Law School; M.Phil., University of Oxford; A.B., Stanford University. She has no financial relationships with pharmaceutical or biotechnology companies, but have served as a consultant to CVS/Caremark, whose business includes pharmacy benefit management, on a topic unrelated to prescription drugs.). Minnesota Law Review. http://www.minnesotalawreview.org/wp-content/uploads/2018/07/Mello_MLR.pdf //RJ

Another perplexing moral problem is that tradeoffs may exist between improving the affordability of prescription drugs for Americans and maintaining their affordability to patients in other countries.53 Branded drug prices in the United States are generally higher than in other countries because most foreign governments have adopted stronger mechanisms than the United States for controlling prices—for example, more consolidated price negotiations or direct price controls.54 Because we pay so much, pharmaceutical companies may be more willing or able to grant price concessions elsewhere, including outright donation of critical medications to low-income countries. Actions we take to restrict price, therefore, could have unintended, but real, effects on drug affordability in less wealthy countries. This prospect raises the question of what obligations, if any, Americans have to patients in the rest of the world. Some conceptions of global justice hold that members of relatively wealthy societies have a moral obligation to consider the welfare of individuals in poorer countries in making policy decisions.55 Other views challenge the notion that such duties exist.56 Some even assert that the status quo is unfair: Americans not only pay more for marketed drugs, they shoulder a disproportionate share of the cost of developing those drugs.57 Pharmaceutical R&D is underwritten both by the high prices Americans pay for medicines and the tax dollars we spend on basic-science research to identify promising new molecules.58 Americans have not openly confronted these clashing viewpoints as a polity, but strong measures to reduce the cost of prescription drugs here would make the global-justice dilemma hard to ignore. Further, as with the other moral dilemmas discussed above, the problem has greater salience in the context of prescription drugs than in other areas of health policy. It is true that other health policy decisions we make, such as how much of federal agencies’ budgets to devote to health system capacity building in low-income countries, also affect the healthcare costs that poor countries must bear. However, because the market for prescription drugs is global but is propped up by high prices in the United States, tamping down drug prices has a zero-sumgame quality that is unique. Squeezing one part of the drug-price balloon may cause it to bulge out in other areas.

Ford, Nathan. “Pricing of Drugs and Donations: Options for Sustainable Equity Pricing.” Journal of Tropical Medicine and International Health. Nov. 2001. https://www.ncbi.nlm.nih.gov/pubmed/11703854 //RJ Concerted international procurement efforts for vaccines and contraceptives have been able to significantly reduce prices for these products, through a combination of strategies. Prices of 1-5% of western market prices have been achieved, with millions gaining access to these products while pharmaceutical companies increased their sales and re-importation to wealthier markets was prevented. AIDS and other life-threatening diseases require similar longer-lasting, more engaging solutions than the current trend of discounts and drug donations with their associated problems of sustainability, geographical and quantitative restrictions, indication restrictions, time restrictions and delays in implementation (Guilloux & Moon 2000). No single strategy will be sufficient to achieve and sustain a real impact on access to vital drugs in developing countries. Rather, a comprehensive system of mutually supportive strategies is required.

Sullivan, Thomas. “Increasing Generic Drug Shortages Linked to Government Price Controls”, Policy & Medicine, 6 May 2018, http://hinj.org/government-pricecontrols-on-prescription-drugs-may-be-morethan-patients-bargain-for/

“First, the number of suppliers of generic drugs has dwindled. There were 26 U.S. vaccine makers in 1967; today there are only six. Supply disruptions are common, including the possibility that a facility completely shuts down for a protracted time because of quality or safety problems. Second, unlike in most consumer-goods industries, many pharmaceutical manufacturers have failed to invest in the technology and quality-control improvements that would reduce the risks of partial or complete facility shutdowns—and this despite the FDA’s regularly issued current guidelines for good manufacturing practices. Behind both problems are the government’s tight price controls for generic drugs, especially when purchased by Medicare and Medicaid. Low prices induce drug makers to exit various markets, or at least to reallocate their manufacturing capacity toward more profitable, patented pharmaceuticals. Low prices also tend to eliminate the rationale for investments in better manufacturing technologies and processes, as shown in a 2009 study conducted by the author and published in the Journal of Management Science.” Tate, Edward. “Government Price Controls On Prescription Drugs May be More Than Patients Bargain For”, HealthCare Institute of New Jersey, 7 Oct 2002, http://hinj.org/government-price-controls-on- prescription-drugs-may-be-morethan-patients-bargain-for/

Another even more important consideration is that price controls stifle innovation and can lead to supply shortages in both the quality and quantity of medications. Consider the recent flu vaccine shortage. The largest purchaser of the vaccine is the federal Vaccines for Children Program. The program buys up nearly 70 percent of all childhood vaccines at government-set prices and then distributes them to states according to a federally-set formula. The end result is that vaccines have been distributed to states where there is no epidemic often leaving a shortage where it is needed. Because the government controls the price, the vaccine makers are discouraged from producing more than what the government orders. Vaccine prices have remained stagnant since 1994. Thanks to these price controls, there now are only four developers of childhood vaccines. That’s down from 20 companies just a few years ago.”

Turk S. Generic Pharmaceutical Manufacturing in the US. IBIS World Industry Report, 2015 32541b. Accessed 15 Dec 2016. https://www.ibisworld.com/industry-trends/market-research- reports/manufacturing/chemical/generic-pharmaceutical-manufacturing.html //RJ

Over the past five years, the Generic Pharmaceutical Manufacturing in the US industry has grown by 1.1% to reach revenue of $60bn in 2018. In the same timeframe, the number of businesses has grown by 2.9% and the number of employees has grown by 1.0%.

Torreya Partners, “Generic Pharmaceutical Industry Yearbook.” Feb. 2016. https://torreya.com/publications/generic-pharmaceutical-industry-yearbook-torreya-feb2016-gpha.pdf //RJ It is readily apparent that the generic pharmaceutical segment is not highly concentrated. The value share of the top ten firms is less than 40% and the largest company, Pfizer occupies only 9% of the value pie. A widely used measure of industry concentration and competitiveness is the Herfindahl Index (HHI). We compute that the global HHI Index as of February 2016 was 0.021, well below the U.S. DOJ threshold of 0.25 that demarcates a highly concentrated industry – where caution would be exercised by antitrust authorities on horizontal mergers. Graham, John. “The Shortage of Generic Sterile Injectable Drugs: Diagnosis and Solutions.” Mackinac Center for Public Policy. June 2012. https://www.mackinac.org/archives/2012/s2012- 04SterileInjectables.pdf //RJ

There is a widely held belief that there has been significant manufacturing consolidation recently. This is unfounded. Fewer than a dozen mergers occurred between 2005 and 2011, and these were small.14 Indeed, in 2001 the top five manufacturers accounted for 90 percent of the market, and this market concentration has declined since then.15 For generic injectable drugs overall, the number of manufacturer-drug combinations increased by 45 percent from 2006 through 2010. In every year, the number of manufacturers entering the market with a new drug exceeded those leaving it, and manufacturers have stated plans to increase capacity.16

Aitken, Murray. “Medicine Use and Spending in the U.S.” IQVIA Institute for Human Data Science. Apr. 2018. https://www.iqvia.com/-/media/iqvia/pdfs/institute-reports/medicine-use-and-spending-in-the- us-a-review-of-2017-and-outlook-to-2022.pdf?_=1542082789524 //RJ

Patient final out-of-pocket costs for dispensed prescriptions were $8.69 on average in 2017, reflecting the use of coupons to lower costs, the use of generics where available, and not including prescriptions abandoned by patients. • Generic costs declined by 7% from $6.98 on average to $6.48, and out-of-pocket costs for brands and generics declined by 17% as greater generic use drove average cost reductions. • Deductibles have been very effective at influencing patient behavior, and arguably rising deductibles and the rising percentage of workers who have them, are limiting use of products where cost exposure is high. Investor’s Business Daily. “Trump is, In fact, Taking on High Drug Prices.” Feb. 2018. https://www.investors.com/politics/editorials/drug-prices-trump-budget-medicare-price-controls/ //RJ

The Los Angeles Times, for example, reported last week that prescription drug prices are slated to climb 6.3% a year, on average, over the next decade, which is faster than overall health spending. It goes on to say that drug prices are one of the "biggest drivers" of health costs and this, in turn, has sparked "growing calls by Democrats for more government regulation of prices." But a look at the data the Times used actually tells a much different story. Despite all of the hue and cry about drug prices, prescription drugs account for slightly less than 10% of national health spending. That share is almost identical to where it was in 1960, when the array of drugs available was far more limited. And in 2016 — the last year for which the government has data — drug spending as a share of overall health spending actually dropped slightly. Because drugs constitute a small share of the nation's health budget, holding down costs won't make much of a difference. For example, if drug spending were to climb at just 4% a year, instead of 6.3% a year, over the next decade, it would shave just 2% off the nation's health care bill in 2026. Meanwhile, the Trump administration is getting attacked because its budget plan, released last week, doesn't push to have the government set prices for Medicare drugs — something Trump himself once advocated — which would be tantamount to federal price controls on all drugs. But Trump is tackling high drug prices. Trump's FDA administrator, Scott Gottlieb, is focused on increasing price- lowering market competition. Gottlieb understands that the more choices there are, the more price competition there will be. So he's pushed the agency to shorten approval times for generics, particularly when there's only one generic alternative on the market. He's also working to streamline the FDA's approval process for new drugs, and lifting the FDA's prejudice against so-called me-too drugs. This sort of competition is already working. A few years ago, price-control advocates pointed to Sovaldi, a breakthrough drug that can cure hepatitis C but cost $80,000 to administer, as the poster child for price controls. Instead, the FDA last year fast-tracked approval of a second hepatitis C drug — Mavyret — which cost less than a third of Sovaldi. Suddenly, there was a price war for Hep C treatments. Competition, not price controls, cut costs overnight. By boosting competition, Trump will be far more effective at lowering dug costs than any regime of federal price controls could ever hope to be.

Darius Lakdawalla is the Quintiles professor of pharmaceutical development and regulatory innovation in the School of Pharmacy at the University of Southern California, 2015, New York Times, https://www.nytimes.com/roomfordebate/2015/09/23/should-the-government-impose-drug-pricecontrols/drug-price-controls-end-up-costing-patients-their-health Drug Price Controls End Up Costing Patients Their Health

On the other side of the ledger, drug price controls would not save that much money. According to federal government data, prescription drug spending makes up roughly one-tenth of America’s total bill for health care. Lopping 20 percent off drug prices by negotiating prices would thus shave all of 2 percent off our total health care bill. What’s more, we will enjoy only a one-time cost reduction, because drug spending has been growing no faster than overall health care spending over the past 10 years.

Book, Robert. “Should the Federal Government Negotiate Drug Prices?” Forbes. 2018. https://www.forbes.com/sites/theapothecary/2018/01/24/should-the-federal-government-negotiate- drug-prices/#58de8e6e1bb9 //RJ

Anyone familiar with federal and state governments’ track record in saving money through negotiations should immediately be skeptical of this sort of proposal. Cost over-runs in military procurement are legendary, and higher prices for government-negotiated prices for infrastructure projects go back at least two centuries, to the contract for the Erie Canal in the early 1800s. In the case of pharmaceuticals, the record is no better, and quite possibly worse. In 1990, Congress pass a law requiring Medicaid programs to get the best prices for prescription drugs offered to any private payer, or 15 percent off list price, whichever was lower – and estimated that the federal and state governments would save $3.3 billion over five years by getting the best discounts any private payers had been getting. Faced with the options of giving deep discounts to the then- largest single buyer of prescription drives, or offending smaller entities payers by revoking their discounts, drug companies responded by reducing discounts overall. The Medicaid savings never really materialized, and private payer discounts dropped to – guess what, about 15 percent off list price

Under the more lenient form of internal price referencing a similar situation will occur because the later-in-class drug is able to set its price freely as long as it is protected by patents. However, under the more stringent version of Internal Reference Pricing, the price of the later-in-class drug will be constrained to the price of the generic as soon as the first-in-class drug goes off patent. This will substantially reduce the price that the owner of the later-in-class drug can charge, particularly in the case where it is able to convince medical practitioners that its drug has significant benefits relative to the firstin-class drug but it cannot convince the government health insurer that its drug is highly innovative. This means that under the more stringent form of Internal Reference Pricing, the producer of a later-in-class drug will earn a significantly lower ROI over the product’s life span than under market-based pricing.

Tosini, Nicola. “An Economic Assessment of the Relationship between Price Regulation and Incentives to Innovate in Pharmaceutical Industry.” European School of Management and Technology. N.d. http://static.esmt.org/publications/whitepapers/WP-109-03.pdf //RJ The incentive to avoid indications with a high degree of competition and to invest in indications that are not well served also exists under market-based pricing. However the response to Internal Reference Pricing is likely to go beyond the level of product differentiation that would be usual with market- based pricing. It will instead lead firms to strategically avoid whole indications for which there is high aggregate demand but also high competition. This means that, rather than innovation leading to a range of differentiated products in a particular indication, each of which treats different patients with varying degrees of effectiveness, there is likely to be less innovation in drugs to treat indications with high expected demand and more innovation in drugs to treat areas with low expected demand. A related response to Internal Reference Pricing is that pharmaceutical firms investing in indications with high expected demand are also more likely to cancel projects at later stages of the development process when they discover that there is a higher-than expected probability that another firm will launch a product to treat the same therapeutic indication before them. This is because the realization that the firm will be later in class significantly lowers the expected return to further investment. Moreover, because this realization typically does not happen until later in the R&D process (for instance, at the time of entering Phase III trials) it means that otherwise- worthwhile projects are more likely to be abandoned and the sunk investment wasted under Internal Reference Pricing. This is an aspect of Internal Reference Pricing on which particular attention is drawn in our dynamic model of development and launch decisions—contained in Section 5 of this report.

The effect of Internal Reference Pricing on the overall level of innovation depends on how the government health insurer implements the scheme. If the provider simply keeps the money that it saves on later-in-class drugs under internal price referencing, and does not compensate first-in-class innovations anymore, then internal price referencing is likely to result in a lower level of innovation overall. Because pharmaceutical firms cannot predict whether they will be first or later-in-class in areas where there is likely to be competition, they will expect a lower return on investment in those areas. They will respond to this by redirecting their investment to areas with less likely competition, but unless they completely redirect their investments to areas where they are guaranteed being first-in-class they will still expect to earn less across all their projects. As a consequence, they are likely to reduce their investment in R&D and there is likely to be less innovation overall.

Stott, Kelvin. “Pharma’s Broken Business Model: An Industry on the Brink of Terminal Decline.” Nov. 2017. Endpoints News. https://endpts.com/pharmas-broken-business-model-an-industry-on-the-brink- of-terminal-decline/?fbclid=IwAR1hKD7_dP-b6E60gZTUOtl2uP5dhvUT4cfd1ulbatpscJxyILaAFFv3cxQ //RJ

As each new drug improves the current standard of care, this only raises the bar for the next drug, making it more expensive, difficult and unlikely to achieve any incremental improvement, while also reducing the potential scope for improvement. Thus, the more we improve the standard of care, the more difficult and costly it becomes to improve further, so we spend more and more to get diminishing incremental benefits and added value for patients which results in diminishing return on investment, as illustrated here:

Smith, Drew. “We Have Reached Peak Pharma. There’s Nowhere to Go But Down.” Jan. 2018. https://undark.org/article/peak-pharma-drug-discovery/ //RJ

The number of protein molecules that are plausible drug targets is large, but far from infinite. Each of these proteins is encoded by a gene; one of the surprises of human genomics is just how few protein-coding genes there are. Pre-genome estimates assumed that creatures as complicated and exquisite as humans could not possibly be specified by less than a hundred thousand genes. The true number is closer to 19,000, a bit fewer than small worms that live in the soil. The number of proteins encoded by these genes that have anything to do with disease is much smaller, amounting to perhaps a thousand in total. Of these, more than half have already been “mined” by pharma: a current estimate is that our pharmacopeia targets 555 proteins in total. If we knew nothing else about drug discovery and development, we would know that the pace of new drug introduction is bound to decline. But we do know a good deal more. We know that the rate of new drug approval (about 27 per year) has held steady for the past two decades, with no sign of a bump from genomics. And we know that the clinical value of these new drugs is shrinking, even as the search and exploitation of new targets intensifies. We know that the cost of bringing each of these new drugs to market increases at an exponential rate. Indeed this rate, 9 percent per year, is so steady, persisting unchanged through different regulatory regimes and new technological advances, that it has been given a name: “Eroom’s Law”(Moore’s law in reverse). Nine percent may not sound like much, but it means that costs double every 8 years. In less than a decade, the cost of a new drug approval, now $2.6 billion, will be at $5 billion. In 16 years, it will be $10 billion. The dynamics of this decline are precisely those of a gold mine. The fist-sized nuggets have all been found, the gravel and sand is getting more expensive to recover, and soon there will be nothing but dust. Knowing this, you don’t have to have a degree in economics to figure out that the day will come when the average new drug candidate is a money loser. That day has already arrived for some drugs. Britain’s Office of Health Economics calculates that the value of new antibiotic candidates is negative $45 million. Pharmaceutical companies figured this out several years ago and most have eliminated their antibiotic R&D programs. Other R&D programs are on the chopping block.

Smith, Drew. “We Have Reached Peak Pharma. There’s Nowhere to Go But Down.” Jan. 2018. https://undark.org/article/peak-pharma-drug-discovery/ //RJ

Get used to this. Moderately-priced mass-market drugs will disappear. Or rather, they will go off-patent and become generics. With no R&D expenses to recoup, they will become cheap commodities, costing a few dozen or hundred dollars per treatment. New drugs, especially those protected from competition by the Orphan Drug Act, will cost hundreds of thousands of dollars per year. Don’t be surprised when the first million-dollar treatment hits the market. These developments are no kind of tragedy — drugs cannot do much moreto lengthen human lifespan. Nor are these developments the result of a conspiracy or of unusual levels of greed. They are just the end-stage of the depletion of a resource.

Fleming, Standish. “Pharma’s Innovation Crisis, Part 1: Why the Experts can’t fix it.” Forbes. 2018. https://www.forbes.com/sites/stanfleming/2018/09/06/why-experts-cant-fix-pharmas-innovation- crisis-part-1-and-what-to-do-about-it-part-2/#64b0cfe816fe //RJ

Dr. Stott bases his assessment on a number of charts on productivity, all pointing emphatically down and to the right. R&D returns in drug development currently stand at 3.2% and could reach 0 in 2020, meaning that a dollar would return a dollar—i.e. no profit. And there is no reason to believe the decline should stop there. The data correlates with the observation of virtually every serious researcher who has looked at the industry. The data are alarming—an industry that destroys investor value faces a dim future. Yet, when Dr. Stott proceeds from data to diagnosis and then to prescription, he fails to come up with a credible action plan. His study may be mathematically accurate, but his conclusions are based on faulty assumptions. As a result, they are misleading. He diagnoses the problem as a failure of technology and so looks for a science-based solution to the innovation crisis. What he finds provides no way out of the dilemma. Failing productivity seems like a strange problem in an industry that generates more cash than it can deploy, enjoys unlimited demand and wields monopolistic pricing power. But pharma is not a “normal” business. Each new drug, each clinical trial is an experiment. Development is inherently unpredictable, as reflected in a success rate of 2% (8% approval rate X 25% commercial success rate for small- molecule therapeutics), far worse than that offered by that notorious destroyer of value, Las Vegas. As a result, biopharma companies cannot increase productivity by simply making more drugs. The current business model does not scale. Costs rise faster than expected returns. While most drug developers readily acknowledge the problem, they ignore it in running their businesses. The results are reflected in Dr. Stott’s charts. Frank, Richard. “Pharmaceutical Industry Profits and Research & Development.” Brookings Institute. Nov. 2017. https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health- policy/2017/11/17/pharmaceutical-industry-profits-and-research-and-development/ //RJ A third conclusion has recently emerged but it reflects only one research effort. Using changes in market size stemming from insurance expansion, Dranove and colleagues examined both the number of new drugs brought to market and the degree to which new drugs are “truly innovative,” as measured by being aimed at an under treated illness or being rated by the U.S. Food and Drug Administration (FDA) as high priority. Like prior researchers, they found that as markets grow the number of new products increases; the vast majority of increases occur in markets where there are already five or more products being sold. Dranove and colleagues found no meaningful increases in the number of drugs rated by the FDA as high priority as market size grew.

Young, Bob. “Rx R&D Myths: The Case Against the Drug Industry’s R&D Scare Card.” Public Citizen. 2001. https://www.citizen.org/sites/default/files/rdmyths.pdf //RJ

Drug industry R&D does not appear to be as risky as companies claim. In every year since 1982, the drug industry has been the most profitable in the United States, according to Fortune magazine’s rankings. During this time, the drug industry’s returns on revenue (profit as a percent of sales) have averaged about three times the average for all other industries represented in the Fortune 500. It defies logic that R&D investments are highly risky if the industry is consistently so profitable and returns on investments are so high. Drug industry R&D is made less risky by the fact that only about 22 percent of the new drugs brought to market in the last two decades were innovative drugs that represented important therapeutic gains over existing drugs. Most were "me- too" drugs, which often replicate existing successful drugs. (See Section VI)

Science Daily, “Potential Solutions to Drug Shortages and the Lack of Competition in Generic Medicines.” Aug. 2018. https://www.sciencedaily.com/releases/2018/08/180809112443.htm //RJ

Increasing incentives and modifying regulations to improve competition. Financial incentives should be considered in order to entice new companies to enter a small market, as should reduced regulatory barriers to avoid deterring new competitors. Increasing competition in this way spreads out drug manufacturing, which adds redundancy and protects against price hikes. Reasonable drug price controls may also act as a safety net for when normal market mechanisms fail and may help curb the out-of- control rate increases in health care costs. It also aligns the United States with other industrialized countries successfully using price control strategies. Redirect overinvestment in new drug development to the generic drug market to foster competition. The race to develop new, but rarely superior, drugs ultimately draws resources away from the high-value generic drug market. Three general strategies to address this problem include: dis-incentivizing overuse of high-cost, low-value brand drugs; incentivizing the use of low-cost, high-value generic drugs (reducing co-payments); and/or ensuring access to rare high-cost, high-value breakthrough drugs that do not have a generic peer. Matthew Herper, Forbes, 10-23-2014 Could High Drug Prices Be Bad For Innovation?, https://www.forbes.com/sites/matthewherper/2014/10/23/could-high-drug-prices-be-bad-for- innovation/, 10-30-2018

With high prices available to every new drug for cancer, companies are stumbling over one another in a race down a well trodden molecular road to profits. That makes pursuing high risk innovation a less attractive option, even though that will be how we get novel drugs that tackle unmet needs. Drugs that will rely on mechanisms that today still seem hypothetical. You might say that it’s not one or the other, but if so, then the whole argument about why we need high prices to fuel innovation falls apart. There are apparently only so many investment dollars to go around, so dollars going to generate yet another drug for ALK are dollars away from a new idea that hasn’t yet been proven. Same goes for the research infrastructure, and for the patients enrolling on these studies.

Mariana Mazz, “State of innovation: Busting the private-sector myth”, N.S. News, August 21, 2013, https://www.newscientist.com/article/mg21929310-200-state-of-innovation-busting-the-private-sector- myth/, SP, October 14, 2018 The examples don’t just come from the military arena, either. The US National Institutes of Health spends around $30 billion every year on pharmaceutical and biotechnology research and is responsible for 75 per cent of the most innovative new drugs annually. Even the algorithm behind Google benefited from US National Science Foundation(NSF) funding.

Smith, Drew. “We Have Reached Peak Pharma. There’s Nowhere to Go But Down.” Jan. 2018. https://undark.org/article/peak-pharma-drug-discovery/ //RJ

Dr. Stott bases his assessment on a number of charts on productivity, all pointing emphatically down and to the right. R&D returns in drug development currently stand at 3.2% and could reach 0 in 2020, meaning that a dollar would return a dollar—i.e. no profit. And there is no reason to believe the decline should stop there. The data correlates with the observation of virtually every serious researcher who has looked at the industry. The data are alarming—an industry that destroys investor value faces a dim future. Yet, when Dr. Stott proceeds from data to diagnosis and then to prescription, he fails to come up with a credible action plan. His study may be mathematically accurate, but his conclusions are based on faulty assumptions. As a result, they are misleading. He diagnoses the problem as a failure of technology and so looks for a science-based solution to the innovation crisis. What he finds provides no way out of the dilemma. Failing productivity seems like a strange problem in an industry that generates more cash than it can deploy, enjoys unlimited demand and wields monopolistic pricing power. But pharma is not a “normal” business. Each new drug, each clinical trial is an experiment. Development is inherently unpredictable, as reflected in a success rate of 2% (8% approval rate X 25% commercial success rate for small- molecule therapeutics), far worse than that offered by that notorious destroyer of value, Las Vegas. As a result, biopharma companies cannot increase productivity by simply making more drugs. The current business model does not scale. Costs rise faster than expected returns. While most drug developers readily acknowledge the problem, they ignore it in running their businesses. The results are reflected in Dr. Stott’s charts. Lutz, Diana. “Researcher Says pharma industry's ability to deliver new drugs may be coming to an end.” Medical Express. January 12, 2017. https://medicalxpress.com/news/2017-01-pharma-industry-ability- drugs.html // RH

Kinch repeatedly emphasizes that decisions like these are rational and not based on "dark motivations." And the point of the book is really that the high cost of bringing a new drug to market ($2.6 billion) is largely the unintended consequence of the desire to make sure drugs are safe. By chapter 10, the author is describing how such high costs led pharmaceutical companies to cut costs, dismantled their own research and development wings but were forced to replenish their drug pipelines by buying one another and then biotechnology start-ups. Altogether, Kinch says, the biotechnology sector was responsible for more than two-thirds of all new medicines in the past decade. But Kinch says this finesse is already failing. The number of successful biotech companies peaked at 141 in 2000 and had fallen to 60 by the end of 2014. It is simply easier and less risky for venture capitalists to invest in two guys in a garage writing code, says Kinch, than in a large, complex biotech lab. As a result, the entire industry, Kinch says, may be "fading to black." To make sure the reader understands the stakes, Kinch mentions three looming crises in drug therapy. One is antibiotic resistance, which, some experts say, will break the surface and come to widespread public notice. in 2017. A similar problem, but one that has received less attention, is the emergence of resistance to AIDS drugs. One in five AIDS patients had a virus that was resistant to at least one component of the current drug cocktail, Kinch says. Seven of the 10 companies that successfully developed AIDS drugs have dropped research in this area. And then there is Alzheimer's. Fully 99.6 percent of experimental drugs designed to treat Alzheimer's failed in clinical trials, according to a 2015 report that Kinch cites. Many pharmaceutical companies, not surprisingly, have reduced or completely eliminated programs that had been focused on Alzheimer's disease and other neuroscience indications.

Mukherjee, Sy. “How VC funding for biotech has fundamentally changed—and what it means for the industry.” Biopharma Dive. June 2015. https://www.biopharmadive.com/news/how-vc-funding-for- biotech-has-fundamentally-changedand-what-it-means-for/399988/ //RJ

Between 2004 and 2008, VC firms invested $21.5 billion in biotech drug R&D. Over the next five-year period, that figure fell 21% to $16.7 billion, according to a report by the Biotechnology Industry Organization (BIO). Perhaps the most striking shift between 2008 and 2013, other than the considerably lower level of overall funding, has been the therapeutic areas that are no longer receiving as much funding. "The big takeaway for me, which we didn't expect going in to this [study], was the drastic drop in the large population diseases," said David Thomas, CFA and one of the two co-authors of the BIO analysis in a telephone interview with BioPharma Dive. "So, the diabetes, endocrinology, gastrointestinal, respiratory, and cardiovascular areas. "When we looked at before the financial crisis and after, for those numbers to be down 50% or more for a lot of them, was very surprising. We instinctively knew there was a lot more interest in rare disease companies and platform companies, etc. But the degree to which there's been a decrease [for those major therapeutic areas] was pretty staggering."

There's also a significantly lower number of VC firms specializing in biotech in general now compared to a decade ago. "Venture capital really started to leave the life sciences in 2008," said Thomas. "There were 40% fewer venture investors in the field in 2013 versus 2007. Basically, what happened was a lot of investors that aren't necessarily hardcore life sciences investors, that weren't fully committed to biotech funds, said in 2008 and 2009, 'We're not going to take on the risk of funding drug developers, we're going to focus our efforts elsewhere.'"

Gehrke, Mirjam. “Pharmaceutical Industry Neglects Developing Nations.” DW News. Oct. 2012. https://www.dw.com/en/pharmaceutical-industry-neglects-developing-countries/a-16331939 //RJ

Prices for new drugs, in particular, are "totally exorbitant," says Christian Wagner-Ahlfs of the BUKO pharmaceutical campaign: "It is a major problem that the companies do not reveal their actual research costs, so the prices are difficult to control." The Federal Coordination of Internationalism, or BUKO, unites 130 German action and solidarity groups that work for the benefit of developing nations. The campaign was started with the aim of examining the activities of the German pharmaceutical industry in Third World countries. Less pricey medicine alone would not improve medical care in developing countries, however, says Norbert Gerbsch, deputy managing director of the Federation of German Industry (BPI). Gerbsch told Deutsche Welle he considers it their responsibility, too: "That is a challenge that can only be solved by development. There is not only a lack of inexpensive medicine in these countries; they also lack health infrastructure, such as doctors, logistics, supply, drugstores and diagnoses," he says. "It is a challenge that addresses all of society. Such deficits cannot be corrected ad hoc." Hunger and malnourishment also promote diseases, such as diarrhea, pneumonia and malaria, the BPI expert adds. Ford, Nathan. “Pricing of Drugs and Donations: Options for Sustainable Equity Pricing.” Journal of Tropical Medicine and International Health. Nov. 2001. https://www.ncbi.nlm.nih.gov/pubmed/11703854 //RJ

The pricing policy of pharmaceutical companies is not set according to the purchasing power of the different countries, but follows a general strategy of maximizing profit. Originator's drug prices are often equal, or more expensive, in developing countries than in rich countries. Such a profit-driven pricing policy further widens the health gap between the rich and the poor. In many cases, more affordable drugs are produced by the generic industry, even for the most recent drugs. However, decision makers often do not have the information they need to identify manufacturers who can supply these drugs. They require easier access to comparative, updated prices.

Ford, Nathan. “Pricing of Drugs and Donations: Options for Sustainable Equity Pricing.” Journal of Tropical Medicine and International Health. Nov. 2001. https://www.ncbi.nlm.nih.gov/pubmed/11703854 //RJ Voluntary lowering of prices by the pharmaceutical companies for low-income countries is a promising strategy. Some aspects and regulations, such as preventing lower-priced drugs from flowing back into high-income markets, the scope of these reductions in terms of populations covered, diseases, and rate of discount applied, require further elaboration. But thus far voluntary price reductions for HIV/AIDS drugs have not been systematic; rather, they appear to have largely been a public relations response to political and international public pressure.

Cox, Joseph, “Surprise! Big Pharma Don't Want Developing Countries Having Access to Cheap Medicine”, October 2013, Vice. https://www.vice.com/da/article/8g344x/american-lobbyists-are-fighting-to-halt- the-availability-of-affordable-medicine-to-the-3rd-world //KV

However, aggressive lobbying from US pharmaceutical companies is set to change all that. America's pharmaceutical plutocrats are attempting to revise intellectual property laws in India, meaning that many people seeking treatment will be forced to buy expensive US imports instead of domestically produced replicas. Which obviously isn't great news for the 96.9 percent of citizens living with less than $5 (£3) a day. In most drug-producing countries that aren't India, once a drug has been developed and a first patent filed and granted, pharmaceutical companies then engage in a practice called "evergreening". That practice basically involves undermining access to affordable medicines by using a variety of tactics to extend the company's monopoly on the drug past its initial 20-year patent period. By obtaining multiple secondary patents, often for trivial modifications to the original, companies are able to protect their product for decades, preventing production of cheaper generic replicas. Because Indian patent law forbids evergreening, the country's generic pharmaceutical companies have been able to produce affordable versions of foreign medicines to suit their nation's income. But it's that law that's coming under pressure from the US government and international drug companies, with both institutions wanting India to allow z, therefore further tightening the companies' grasp on drug monopolies. That, of course, means that low-cost generic medicines will simply disappear, leaving India's sick the choice of whether to submit to severe poverty in order to raise the cash for US imports, or forego treatment altogether. Either way, India loses. Pinheiro, Cristina. “Drug Donations: What Lies Beneath.” National Institutes of Health. 2008. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2649461/ //RJ

Recent accounts of emergency relief operations throughout the world reveal that all major donations of pharmaceuticals fail to meet the recipients’ real needs.3 The inappropriateness of drug donations comes primarily from their origin (industry surpluses, free medical samples, drugs collected by independent organizations or returned to pharmacies for disposal). Some drugs arrive unsorted and labelled in languages unknown to the professionals in the field. Expired drugs (at the time of their arrival) and drugs close to expiry still comprise a large proportion of donations from nongovernmental organizations, corporations, pharmaceutical industries and associations.4 This practice is defended by a sad assertion that making use of expired, partially degraded drugs is better than having none at all. It obviously raises an ethical issue about the existence of first-hand/first-class drugs and second-hand/lower-class drugs and a disturbing division between the rights and worth of different populations. Drug donations provide benefits such as tax deductions and are a very convenient way for industries to get rid of stagnant stocks without having to pay for their controlled and expensive destruction in their country of origin.5 Some entities seem to find it legitimate to send unusable drugs to nations which are not prepared to dispose of them safely and properly. The recipients receive the drugs as donations and instead are obliged to manage them as waste. Lamentably, there is no international convention to regulate the transfer of non-requested pharmaceutical products and surpluses across borders. Once received into a country, the donations cannot be returned to donors, as recommended by the guidelines, because they are considered hazardous cargo and their shipment must respect the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal.6 This legal demand involves the existence of consented protocols between exporters and importers, and time-consuming procedures that severely compromise its feasibility. Therefore, we can clearly say that drug donations are not for free and most of the time their costs to the recipient countries surpass the very fair value of the donations. If the recipients have to pay more (for something they do not need and did not ask for) than they would by just purchasing the medicines and equipment needed, then what good are the donations? Till, Brian. “How Drug Companies Keep Medicine Out of Reach.” The Atlantic. May 2013. https://www.theatlantic.com/health/archive/2013/05/how-drug-companies-keep-medicine-out-of- reach/275853/ //RJ

Bill Gates, speaking to the Royal Academy of Engineers in London last March, managed to capture the problem that Love's idea would be leveled against: "Our priorities are tilted by marketplace imperatives," Gates said. "The malaria vaccine, in humanist terms, is the biggest need, but it gets virtually no funding. If you are working on male baldness or the other things you get an order of magnitude more researching funding because of the voice in the marketplace." This fact -- that research-based pharmaceutical companies focus on the most lucrative products, rather than the most needed -- is particularly damning for the global poor, whose diseases will never be profitable enough to attract the industry. The WHO has recognized 17 such diseases, known as either type III or neglected tropical diseases (NTDs). Almost all of them edge on biblical in both scope and horror. "The needs are pervasive because these diseases have been so understudied," said Peter Hotez, the founding dean of the National School of Tropical Medicine at Baylor University. "Look at a disease like hook worm infection. Well we now know that single dose mebemindizole doesn't work against Nacator americanus, which is the major hookworm. Why is that? We really don't know," Hotez said. "The WHO I think did us a disservice a few years back when they coined the term 'tool ready' versus 'tool deficient' diseases. All neglected tropical diseases are tool ready, and those same diseases are tool deficient," Hotez said, meaning drugs exist to fight all of the conditions, but many are met by severe resistance and others are poorly adapted for low-resource settings.

Anderson, Angela. “Global Pharmaceutical Patent Law in Developing Countries- Amending TRIPS to Promote Access for All.” University of Tulsa. 2006. https://sites.hks.harvard.edu/m- rcbg/fellows/T_Christian_Study_Group/Overview/Global_Pharmaceutical_Patent_Law_in_Developing_ Countries.pdf //RJ

The major complaint concerning current international patent law is the imbalance between rights of the pharmaceutical companies and the lack of obligation to provide access to essential medicines.9 Despite the assurance from the developed countries that the global patent system is a stimulant for pharmaceutical innovation, research, and development; in reality, this innovation, research, and development is almost exclusively confined to the private sector and areas of profitable return.10 Therefore, in developing countries with relatively small commercial markets and low levels of disposable income, there is very little incentive for pharmaceutical companies to conduct extensive research and development in creating drugs for life-threatening diseases limited mostly to the developing world.11 Only 1% of the 1,400 new medicines created in the last 25 years were developed for the treatment of tropical diseases (AIDS, malaria, tuberculosis, etc.), despite tropical diseases killing tens of thousands of people each year.12 Tropical diseases are almost entirely confined to the developing world and again, do not represent a profitable market for the pharmaceutical industry.13 The developed country argument that patent protection facilitates innovation and thereby improves overall world health is rebutted with data showing that although patent protection has increased over the last 20 years, the drug innovation rate has fallen and the number of drugs with little or no therapeutic gain has increased.14 “Essential medicines are not a luxury whose availability can be left to private market forces only, but an essential component of the fulfillment of the right to health.”15

Robert, Adam. “Drug donations are great, but should Big Pharma be setting the agenda?” Apr. 2013. The Guardian. https://www.theguardian.com/world/2013/apr/29/drug-company-donations-bigpharma //RJ

Take drug donations. While giving people free medicine might seem a sure-fire winner for corporate PR and the world's poor, some practitioners have reservations. Firstly, donations may focus the public health community on interventions for which companies have cures – albeit donated ones – without sufficient consideration of cost effectiveness, opportunity cost or prioritisation. Such factors are relevant, as free donations can lock governments and donors into particular programmes which they later have to fund themselves. Levy, Moshe. “The Pricing of Breakthrough Drugs: Theory and Policy Implications.” 2014. National Institute of Health. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4244177/ Figure 2 implies that a small change in price relative to the monopolistic price has a first-order effect on consumer surplus and the number of patients using the drug, but only a second-order effect on revenues. From this perspective it is clear that some amount of price regulation is socially desirable. Of course, the practical question is how much regulation is not too much? If a price cap is set too low, this may have a drastic influence on revenues, stifling all R&D incentives for the pharmaceutical companies. Tables 1 and and22 present some quantitative results regarding this issue. Table 1 reports the effects of imposing a price cap which is 20% lower than the monopolistic price (An external file that holds a picture, illustration, etc. Object name is pone.0113894.e074.jpg), for various different drugs (different values of h). This amount of regulation leads to a decrease in revenues of only about 1%, but to an increase in surplus of about 10%. The magnitude of An external file that holds a picture, illustration, etc. Object name is pone.0113894.e075.jpg is about 25 times the magnitude of An external file that holds a picture, illustration, etc. Object name is pone.0113894.e076.jpg. The regulation leads to an increase of about 23% in the number of patients using the drug.

Kacik ’18 – more generics is not lowering prices; brand name drug price hikes are driving prices upwards Kacik, Alex. “Branded drug price hikes dwarf higher utilization of lower-cost generics.” Modern Healthcare. Nov. 2018. https://www.modernhealthcare.com/article/20181116/NEWS/181119947 //RJ

While overall drug spending only increased by 2% from 2016 to 2017, slower than years prior, it was largely due to branded-drug price hikes, according to an update of the Blue Cross and Blue Shield Association's study of medical claims of more than 40 million members. Spending on both branded patent-protected drugs and branded specialty drugs increased 5% and 10%, respectively over that span. In 2017, brand-name prescription drugs represented only 17% of total prescriptions filled but made up 79% of total pharmaceutical spending. Branded patent-protected prescription drugs made up 52% of branded prescription drugs filled and accounted for 66% of total branded-drug spending. Brand-name specialty drugs represented a mere 3% of branded-drug prescriptions filled but accounted for 34% of total branded-drug spending at $27 billion. Meanwhile, generic drugs continue to add to their growing market share, rising to 83% of prescriptions filled. Generic drugs' share of total prescriptions filled was 66% in 2010. Yet, price hikes of branded pharmaceuticals still dwarf the higher utilization of their lower-cost alternatives. Total spending on generic drugs has declined 3% since 2016, while branded prescription drug spending is up 4%. "Given the increase in generics, we should be in a fairly strong negative downturn in overall spending. But we're not," said Brian Harvey, executive director of the Blues' Health of America research initiative, which came out with the study. "It's not negative because of the upward trend in the branded patent-protected space, particularly in the specialty space.